State of the Union: Obama Proposals Call for Tax Increases

In tonight’s State of the Union address, President Barack Obama will call on the new Republican-led Congress to raise taxes on investments and inherited property as well as create or expand a range of tax breaks for middle-income families.

The President’s new initiatives include tripling the child-care tax credit, creating a new credit for families in which both spouses work, and consolidating and expanding education tax breaks.  The administration also plans to make retirement savings programs available to more people by requiring employers to enroll workers in an individual retirement account if they have not already done so. 

The plan would make sweeping changes to the tax bills of wealthier taxpayers by raising the taxes they pay in investments.  The top capital gains rate would rise to 28 percent form 23.8 percent.  Furthermore, the plan proposes to tax capital gains at death rather than allow them to pass income tax free to heirs as under current law.  This implementation would eliminate arguable the biggest loophole in the tax code for wealthy households since postponing realization of capital gains until death may allow a taxpayer to avoid millions of dollars in taxes on substantially appreciated assets.

While it seems unlikely Congress will approve the President’s proposals, they will surely provoke heated discussion. 

See Carol E. Lee, Colleen McCain Nelson, and John D. McKinnon, Obama to Propose Tax Hikes on Investments, Inherited Property, Market Watch, Jan. 18, 2015.

See also Len Burman, President Obama Targets the ‘Angel of Death’ Capital Gains Tax Looophole, Forbes, Jan. 18, 2015.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing these articles to my attention.